1. You are analyzing the stock of Cumberland Mining. The firm is expected to grow at a rate of 20% per year for two years and then resume its normal growth rate of 5% indefinitely. The firm paid a dividend last year of $1.25 per share. If you require an 8% rate of return on stock, what is the value of Cumberland Mining today?
2. Ashland Oil is not expected to pay a dividend until the end of the third year. At the end of year three, the dividend expected is $0.60. At the end of year four, the expected dividend is $0.65. After that, it is anticipated the firm will follow a normal growth pattern at 3% per year indefinitely. If you require a 6% rate of return, would you be willing to pay $20 for a share of this stock?